Monthly Archives: May 2017

In the Justice Karnan row, the judiciary can demonstrate that they will not flinch on accountability

The Justice Karnan controversy is entering unseemly territory. Yet, it has presented a never-before opportunity for the judiciary to score an important point in the scheme of constitutional politics.

At every stage of being disciplined, Justice C S Karnan has made society suspend disbelief. He has been purporting to pass unprecedented ex parte orders against judges of the Supreme Court, among others, directing the Chief Justice of India and other judges not to travel out of India so as to “prevent them from infecting” territories outside India with their anti-Dalit attitude. Whether Justice Karnan’s conduct is contemptuous of the judiciary, whether he is at all of sound mind, and what, if any, the punishment for contempt should be, may eventually be determined judicially. However, there can be no doubt about one fact — his behaviour is eminently impeachable.

At the time of this column going to press, no one in authority has used the i-word. The very thought appears to be far removed from serious consideration. Reasons vary. Some believe that it would be meaningless to do so with the judge having just weeks left in office. Others feel that a judge being impeached would tarnish the history book. Leaving aside what reasons compete for keeping Justice Karnan away from impeachment, here is a simple political thought.

Impeaching a judge of a high court or the Supreme Court is, for all the right reasons, a tough task. Misconduct by a judge can be lightly alleged by any party unhappy with a judge’s decision. In every litigation, there is at least one party unhappy with the outcome (at times, all parties can be unhappy, but such is life when differences cannot be resolved mutually). Arms of the state, in particular, governments, government agencies and the bureaucracy are the biggest contributor of litigation in the country. This renders judges vulnerable, and unless effectively protected under the Constitution, it would be impossible to have a credible and respected judicial arm of the state.

The constitutional tension and politics between the executive arm and the judicial arm of the Indian state has been typically informed in recent times, by the debate on accountability. It is no judge’s case that judges must not be accountable at all for misconduct, but it is vitally important to ensure that misconduct is not lightly alleged. The constitutional amendment to change the manner in which judges are selected and tested for accountability, and the amendment being struck down, has been the high point of this constitutional political tension in the past two years.

Now, Justice Karnan presents a fantastic opportunity to the judiciary. No judge in the higher judiciary has presented a stronger case for being impeached. Impeachment requires elected members of Parliament to speak up and act. To impeach a judge, misbehaviour or incapacity has to be proven as grounds for tabling an impeachment resolution in any House of Parliament. In the Lok Sabha, 100 members have to come together to set the ball in motion while in the Rajya Sabha, 50 members would do. The Speaker in the Lok Sabha and the Vice-president who chairs the Rajya Sabha have to accept that a motion to impeach a judge may be tabled. Each House of Parliament is required to vote with a majority of not less than two-thirds of the members present and voting.

At every stage of being disciplined, Justice C S Karnan has made society suspend disbelief. There can be no doubt about one fact — his behaviour is eminently impeachable

If our politicians are serious about judicial accountability and the need to bring judges to account, an impeachment motion for Justice Karnan should be a sitter. Reality is different. The political system will bring into motion the conventional political dynamics for the vote. Justice Karnan’s defence of the indefensible is largely based on one single point — that he is being targeted on caste-based lines because he is a Dalit. Dalit Members of Parliament could call his bluff if they so desire. A government that is said to be committed to finishing off caste-based politics — with a beginning having been made in the Uttar Pradesh elections —and indeed, said to be committed to bringing in an era of judicial accountability, should easily find 100 members in the treasury benches of the Lok Sabha or 50 members in the treasury benches of the Rajya Sabha to do the task of setting the ball in motion.

If Supreme Court judges were to transparently (read, publicly) ask for such a motion to be passed, it would set the cat among the pigeons. Parliamentarians would have to deal with having been called upon to play their constitutional role — something they say they are keen to see judges do properly. And, if Parliament flounders, whether on caste lines, linguistic lines, or indeed any political lines (the nuanced and intense floor management in the 1990s when Justice Ramaswami’s impeachment motion was considered by Parliament comes to mind), the judiciary would have proven its point — that the judiciary will not flinch from taking accountability to the logical and ultimate end, and it is the political system that is unable to handle it. It would prove to Indian society that the legislative obsession with how judges are appointed, while important, is not founded on outcomes but on the politics of who may occupy high judicial office.

On the other hand, if Parliament indeed acts to impeach Justice Karnan, that would in itself be a milestone in India’s constitutional history. Not one judge having been impeached in the Republic’s seven-decade history is not a nice sign. It is a pointer to the checks and balances built in by the founding fathers of the nation not having been put to use at all. If politicians play the usual card of convincing the judge to resign midway during impeachment proceedings, the judiciary would have still made its point that it is unflinching in calling upon the system to work towards accountability. So, the Justice Karnan situation presents a win-win opportunity that is waiting to be seized.

This piece appeared in the column titled Without Contempt in the editions dated May 25, 2017 of the Business Standard

If news reports are right, the Securities and Exchange Board of India (Sebi) is coming full circle with collective investment schemes (CIS) and is seeking to “relinquish” the statutory mandate to regulate such schemes.

It was only in 1995 that the term found its way into the Sebi Act through an amendment to the list of market intermediaries that ought to be registered with Sebi to be able to carry on business in India. Then, too, Sebi had been a reluctant regulator. Schemes promising returns on the basis of plantations, animal farming, chain-marketing and the like mushroomed in the 1990s. The term “collective investment scheme” was not even defined in the Sebi Act. Therefore, despite the amendment to the Sebi Act, Sebi did not want to hold the CIS baby.

Public interest litigation, a plethora of complaints and a lot of angst later, the term got defined for the first time through an amendment in the Sebi Act in 1999. Sebi also made regulations in 1999, which, if reduced to one sentence, would have read: “No one shall operate a collective investment scheme”. The terms on which one could legitimately register and operate a CIS was akin to Christian states in the US stipulating norms for abortion agencies — keep the standards so rigid and tough that they pose an entry barrier and cannot be complied with. Not surprisingly, right since 1999, there has been only one reported registered CIS in the history of Sebi.

The problem with such an approach to regulation is fundamental — pretending that making it illegal to carry out an activity would put an end to it. The activity continued, the monies raised grew even faster, some of which are even feared to be from non-existent investors — read: money laundering schemes. An even more bizarre amendment sailed into the Sebi Act in 2013. The 1999 amendment had set out four ingredients to be met for any scheme or arrangement of affairs to be regarded as a CIS — essentially, schemes entailing a contribution of funds for earning of profits, management of the funds pooled by someone on behalf of the contributors and the contributors not having day-to-day control over managing the pool. Now, in 2013, the law was amended to say that even if these ingredients were absent, if the corpus of any arrangement of affairs was of Rs 100 crore or more, it would be “deemed to be” a CIS.

This set the cat among the pigeons. Any and every pooling of funds that would have a corpus value of Rs 100 crore would be a CIS, which meant that a registration with Sebi would be necessary for the activity to be legitimate. A pooling of resources by neighbours owning apartments in an expensive city like Mumbai to rebuild and redevelop their building would arguably be a CIS. The provision of holiday schemes where the contribution by guests would give them the right to use a property from the pool of properties built or rented with the contributions would arguably be a CIS. Provision of valuables such as gold coins with contributions in instalments would arguably be a CIS.

None of these would involve issuing securities and therefore, none of these can ever comply with the regulations governing CIS that Sebi had made in 1999. Therefore, all of it would be illegal. Those who cared for the law, shut down such activity or moulded them. Those who did not care, kept at it — eroding the majesty of the law even further by reason of formulation of law not properly thought through.

Meanwhile, with public furore over some CIS that failed led to some judicial comments about Sebi sleeping on its job, which got reported in the media and then led Sebi to crack down by ordering that monies collected be refunded within a few weeks or months. Now, this would spur asset-liability mismatches further and lead to either a run on the schemes that could not be met, or worse, led to CIS operators starting newer schemes underground to fund repayment of schemes ordered to be closed. In a nutshell, a royal mess is on the regulator’s hands.

It is in this context that reports of Sebi wanting to relinquish this statutory role is interesting. Around the time Sebi piloted legislative amendments to treat any corpus of Rs 100 crore or more as a CIS, it had a muscular tone about how anyone speaking about the need for a predictable framework for running a compliant CIS could only have been aligned with the bad guys. Now, it seems, Sebi is conscious that pushing an entire industry underground is actually counterproductive and brings about worse outcomes. Whether it would at all be politically possible to amend the Sebi Act yet again to remove CIS of this kind from Sebi’s ambit is doubtful. But one must assume that it the mind is set on an outcome, the government will find ways to get that done — whether through a Presidential Ordinance, a Money Bill or blanket provisions in the Finance Act.

If Sebi pulls off this one, the market would have come full circle back to the 1990s. Who then, would bell the cat?

This column was first published as Without Contempt in all editions of Business Standard edition dated May 5, 2017